Ask a Fool: How Can I Protect Myself From a Stock Market Crash?

Q: I'm worried that the market is due for a crash. How can I prepare for it?

There's no way to accurately time a market crash, so it's generally a bad idea to sell your investments in anticipation. Many experts were predicting one in 2015, but the bull market has continued, and the S&P 500 is up 18% since then. People who sold in anticipation of a market crash would have missed out on this additional upside.

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The same logic applies now. The market will eventually crash, but it's entirely possible that we could have a few more years of strong returns first.

That said, it could be a good idea to allocate more of your portfolio to stocks that tend to hold up well during bear markets. Dividend stocks with excellent track records of increasing their payouts are a good example. For instance, shares of companies like Wal-Mart Stores and Procter & Gamble both handily beat the S&P 500's return during the 2008 crash. In fact, Wal-Mart gained nearly 20% in 2008, while the S&P 500 lost 38%.

Also, while I don't advise getting out of stocks in anticipation of a crash, now could be a good time to start raising cash. For example, if you contribute $400 per month to your IRA, you may want to leave your next few contributions un-invested for the time being. This will allow you to take advantage of bargains that could come with a market crash.

As Warren Buffett has said, "When it rains gold, put out the bucket, not the thimble." In other words, a crash produces some excellent opportunities for long-term investors, so put yourself in a position to buy rock-solid stocks at bargain prices whenever the next one comes.

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